TCS sees big wins, sure of FY19 growth in double digits

Tata Consultancy Services said it was confident it would end FY19 with doubledigit growth and enter the next financial year with strong growth momentum, as a slew of large deal wins boosted the IT player’s second-quarter results.

India’s largest IT services company had failed to post double-digit growth for the past two years, a performance that weighed on the management, CEO Rajesh Gopinathan said.

“Two years back we slipped down from our double-digit growth trajectory, and as a management team we have been focused at getting back to that growth level. Now, we have the numbers on the board and the momentum to say that doubledigit growth will continue to the end of the year,” Gopinathan said at a post-earning press conference. “We will carry momentum into the next fiscal year. What that growth will be, it is still too early to tell.”

For the July-September quarter, TCS’ dollar revenue grew11.5 per cent yearover-year in constant currency terms, which strips out volatility due to fluctuating currencies. Sequentially, revenue grew 3.7 per cent to $5.22 billion. In rupee terms, revenue rose 7.6 per cent sequentially, and 20.7 per cent yearover-year, to Rs 36,854 crore.

“TCS Q2FY19 result is in line with our forecast as regards headline numbers. There is a slight miss as regards CC revenue growth and EBIT margin. However, TCS has confirmed it is confident to maintain double-digit revenue growth for FY19,” Urmil Shah, analyst with IDBI Capital, said.

The Mumbai-headquartered company’s margin expanded 149 basis points sequentially to 26.5 per cent, the weaker rupee helping it return to its targeted margin band of 26-28 per cent. TCS’ margin had been below that level for most of the last several quarters. “Our margin performance is a function of our growth and currency movements. And with both in our favour, we are in our targeted range,” Gopinathan said. TCS continued its strong deal performance in the second quarter. The company said it won about $4.9 billion worth of deals in the first quarter and a similar amount of deals in the second quarter.

Analysts said the deal wins were expected and that more large deal wins would be needed to drive double-digit growth in FY20. “A lot of the large deal win-related growth is in right now. (TCS) will have to win large deals by the first quarter of calendar 2019 to power double-digit growth in the next fiscal,” Girish Pai, analyst with Nirmal Bang, told ET.

TCS had its best-ever quarter in terms of net headcount addition in four years. Net headcount addition was 10,227 employees in the second quarter. Overall, TCS employed 411,102 people at the end of September. Attrition rates stayed steady at10.9 per cent.

“They are certain of ending the year with double-digit growth even though they have talked about nearterm concerns due to the uncertainty around Brexit and the trade wars. And they are continuing to win large deals. So all in all, I would say this was a good quarter,” an analyst with a Mumbai brokerage told ET.

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